Expat Taxes in China: How to Calculate Your Tax Rate in China

Taxes may feel boring or tedious, but let’s face it they’re a key part of being an adult. When you’re living in a foreign country like China, they become even more important: the last thing you want is to get underpaid simply because you didn’t understand about the tax rate in China for foreigners. Well, don’t worry–taxes aren’t that complicated once you break it all down. Here’s what you need to know as an international worker in China:

Opening a Bank Account

When you open a bank account you will be asked for a ‘Tax Number’. This is not a tax number from China, this is your Social Security Number or equivalnet in your home country.

Monthly Taxable Income

The Individual Income Tax Law of PRC states that an international worker must make at least 4,800 yuan a month to be eligible for taxation (In US dollars, this would be around $750). If you do make at least 4,800 yuan, you’ll be taxed at a progressive rate–which means the more you make, the more the government takes.

Receiving Tax Reports in China

At the end of your working year and contract you can go to the local tax office in the city you live in China to receieve any tax reports. You can also ask your local school staff for assistance. When companies pay tax for a Foreigner they will provide the full name and passport number, this is all you need when you go to the local tax office to attain the tax reports for the year.

Calculating Monthly Income Tax

So, if you are eligible to be taxed, you want to make sure that you’re getting taxed at the correct rate for your income bracket. Luckily, there are specific guidelines to help you calculate taxes in China for expats.

2) Using the monthly taxable income chart, find the correct tax rate and “quick deduction”. Depending on income, tax rates can vary anywhere from 3 to 45%.

3) Once you find your tax rate, divide it by 100 to convert it into a decimal.

4) Then, multiply that decimal by your monthly taxable income. Take the result and subtract the “quick deduction” number. This should give you the amount of tax you’ll be responsible for paying in China.

An Example of Calculating Monthly Income Tax for ESL Teacher in China

Still feeling a little confused? That’s okay. Here’s an example that will be close to 1st year ESL Teacher in China to help clear things up.

Let’s say your monthly income is 15,000 yuan. To calculate the tax rate of that, you would:

1) Subtract 4,800 yuan from 15,000 (15,000 – 4,800 = 10,200 yuan).

2) According to the chart, the correct tax rate for 10,200 yuan is 25% and the quick deduction is 1005 yuan.

Each month, you would get 1,545 yuan taken out of your paycheck, and you’d end up bringing 13,455 yuan home.

Different Forms of Taxable Income

It’s also important to understand that your salary isn’t the only form of income that can get taxed by the government. Other taxable income includes royalties, interests, dividends, bonuses, lease of property, remuneration for services, transfer of property, contingent income, author’s remuneration and anything else that may be specified by the Finance Department of the State Council.

How Long You Stay in China can also Influences Tax Liability

Depending on how long you plan to stay in China, the amount of tax liability you have can differ. The length of time can be divided into four categories:

Less than 90 Days

If you’re only in China for ninety days out of a year, the only tax you’ll have to pay is on the income you earn from Chinese companies for work. (This doesn’t include foreign companies–only Chinese ones.)

90 days – 1 year

Any foreigner who works in China from 90 days up to a year has to pay all income tax on all work done in China–regardless if the company is Chinese or not. However, in some special circumstances, you may be able to work out an agreement with your country and China to avoid paying this foreign income tax if you stay less than 183 days.

1 – 5 years

Anybody staying 1 – 5 years, however, has to pay income tax on all work done while in China. The only income tax that is exempted is for work that was done outside of the country. (For example, if you live in China, but take a summer trip to Europe, any wages you earned in Europe would not be taxable by the Chinese government.)

Over 5 years

Once you’ve lived in China for more than five years, you’ll be held responsible for the same tax liabilities as Chinese residents are. In this case, it would be a great idea to familiarize yourself with all of China’s tax laws to make sure you don’t end up owing money and having to pay a fee.

Even More Money

The Chinese Government and other countries may have agreements so a person will not get doubled taxed in China and from their home country. However, that doesn’t necessarily mean that you are completely off the hook. For many countries, you may also be required to pay taxes for your home country, regardless of where you live.

For example, the United States has very specific guidelines regarding expats. US citizens living in China have to file taxes with the IRS each year, and often have to include information on any financial assets held in Chinese banks. That being said, it isn’t all bad–the US has a few rules to help out–such as being able to decrease taxable income on your first $100,000 in earnings, foreign tax credit and housing exclusions.

As long as you do your research and apply for these exclusions and credits, you’ll very likely be able to eliminate a majority of any money you owe in US taxes.

Additional Information

Another thing to keep in mind is filing deadlines. While the filing deadline for the US is April 15, China’s deadline is March 31–they also don’t allow extensions and you’ll be forced to pay a penalty for late filing.

The other thing to remember is that China taxes more than just income. You’ll have to pay a 13-17% tax rate on anything you buy–such as food, utilities, furniture, etc. For capital gains made on real estate, assets and stocks sourced in China, you’ll be expected to pay a 20% rate.

Understand Your Tax Liability in China & Your Home Country

Although taxes may be the last thing on you’re mind when moving to China, it’s important that you understand what kind of financial liabilities you’ll be responsible for–from both China and your home country.